Markets this week will be anxiously awaiting the Treasury department's results from the bank stress tests. This report will be released on Thursday, with aggregate numbers as well as recommendations for the top 19 banks. We would expect that the banks will require fairly significant injections of new capital - in the range of $100 billion to $200 billion for the top 19 banks. The uncertainty over the volume of new capital that is needed system-wide, as well as the impact across institutions, has been causing significant indigestion in the markets for weeks. The sooner this process is over the better.

Fed Chairman Ben Bernanke will provide testimony to the Joint Economic Committee of Congress on Tuesday. We do not expect Bernanke to stray too far from the recent FOMC press release, where the Fed remained committed to full throttle on monetary policy. There may be some Q & A on the disjointed functioning of the credit markets and the obstacles that banks - particularly the recipients of TARP funds - are facing with re-booting their lending activity.

In economic releases this week, the major one will come on Friday with the release of the April employment report. Despite a rash of recent positive indications about reduced downward pressure on the economy, labor markets are still struggling and we expect a large 625,000 decline in employment. That might add a dose of sobriety to the recent positive spin in the markets. Construction spending is expected to have declined in March, but the ISM index for non-manufacturing industries is expected to rebound by several points.

Good weather pumped up some of the February construction numbers. More normal weather will help bring the March numbers down. We are expecting negative numbers from all three construction categories. Single-family residential spending should drop by more than 7 percent, declining for the 37th straight month. Excluding improvements, spending will drop by 2.0 percent.

Employment market conditions improved slightly, but there was still downward pressure on production, inventories and shipments. Conditions in financial markets, however, improved substantially with lower risk spreads and stronger equity markets.

Although unemployment insurance claims indicate that the pace of layoffs may have peaked, job losses are still heavy, and the numbers claiming unemployment insurance continue to climb rapidly. The labor market will turn only after the rest of the economy improves. Government payrolls may get a temporary boost from hiring for preparatory work on the 2010 Census.

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